1. + The SIP process – issues experienced by the RE Industry and IPP’s October 2014 Moeketsi Thobela, CEO SAPVIA, Johan van den Berg, CEO, SAWEA

2. RENEWABLE ENERGY AND THE SIP process Our understanding about the ultimate aim of the SIP process is that it is about creating the infra-structure and linkages to make SA work optimally with the view of creating a decent life for all Energy/electricity is a core component, RE is important in terms of various policy documents - including the NDP and IRP NDP growth of 5% pa implies perhaps 3% pa energy/electricity growth RE can be assessed within the SIP more broadly (general linkages and enabling – forward looking) and more narrowly (the REIPPPP process – looking back to improve the future)

3. Renewable energy within the SIP process – broad context in summary (1) We need electricity to power growth. REIPPPP is an excellent success – ZAR 120 billion deployed in about 3 years, all from private sector. Acceleration possible - RE now generally cheaper than new coal power, sometimes considerably so (56c vs 1.05/kWh). REIPPPP can be improved and some steps need to be taken to ensure the success continues – mostly around grid ED/SED holds very considerable promise – ZAR 11 billion over the next 20 years – rigorous monitoring will be key as compliance mechanisms are very strong Parallel procurement processes for smaller scale isnatllations can make a large contribution to electricity shortages likely to persist until 2020 and can further NDP goals, with REIPPPP providing the bulk electricity at low cost

4. Renewable energy within the SIP process – broad context in summary (2) Local content and industrialisation ambitions together with electricity shortages says “build the green economy now, aggressively“ - “no regrets“ policy We must continue to build and maintain grid infrastructure, no matter what. Grid budgets should be isolated from Eskom financial recovery process Strategic Environmental Assessment (“SEA“) must be dealt with very carefully to avoid unintended consequences South Africa should investigate electricity storage technologies and become a world leader – the African market for distributed electricity runs into the 100‘s of millions of people. Presently we have excess storage capacity, but we will need more in time

5. REIPPPP – macro improvements – or parallel processes? REIPPPP drives prices down to very low levels – international investors with low cost of capital have been increasingly successful Cost vs value for “SA Inc” – is this optimal? At somewhat higher prices we might do even more on ED/SED/job creation/local majority ownership REIPPPP however brings lots of green power quickly at low cost Parallel processes can create the balance

6. REIPPPP – macro improvements – or parallel processes? REIPPPP drives prices down to very low levels – international investors with low cost of capital have been increasingly successful Cost vs value for “SA Inc” – is this optimal? At somewhat higher prices we might do even more on ED/SED/job creation/local majority ownership REIPPPP however brings lots of green power quickly at low cost Parallel processes can create the balance while REIPPPP is fine-tuned

7. Medium scale projects Many feel we need a medium scale procurement programme with higher and perhaps fixed prices (20% > REIPPPP for previous year?) and high thresholds re local content, job creation, local ownership. The project size limit will be somewhere between 10 MW and 50 MW with potentially a sliding scale of fixed prices, the bigger the lower These projects will be able to connect to grid in places where larger projects cannot This category of projects will pursue value for “SA Inc“, more than price

8. Micro scale projects (< 1.5 MW) Rooftop RE (commercial and residential) will happen whether promoted and steered or not – mostly PV Considerable potential and owners likely to install with batteries, creating many benefits for the electricity system Allowing them to export under a „standard offer“ will ease electricity supply constraints and minimise black-outs, save money from Open Cycle Gas Turbines (costing ZAR 11 billion p.a. at present) These savings should be used to compensate municipalites for lesser revenue through electricity sales Solar Water Heater programme should be accelerated as much as possible

9. ECONOMIC DEVELOPMENT/SOCIO ECONOMIC DEVELOPMENT Has the potential to fundamentally transform deep rural communities – example of wireless connectivity/monitoring Most of RE industry are embracing the challenge – for SAWEA it is our number 1 deliverable in our business plan Early projects have been operational for less than 6 months, other less – so in say 12 months more impacts of long term programmes will start to be seen

10. ECONOMIC DEVELOPMENT/SOCIO ECONOMIC DEVELOPMENT (2) Implementation agreement in REIPPPP says the Power Purchase Agreement can be terminated for repeated non-performance of ED/SED commitments – this is the strongest possible sanction Compliance can be ensured if only the monitoring is done well The industry associations have appetite and expertise to assist with all aspects, including monitoring, but needs far more capacity In all five associations collectively the head count in aggregate is 9 – Renewables UK has almost 60 people without pursuing ED/SED ambitions

11. Renewable Energy within the SIP process – specific issues with REIPPPP as per members’ survey Grid related issues Water use licences/SALA Act 70/1970 – agricultural land General

12. Grid connections CategoryIssues Cost Estimate Letters (CELs) Process delays (e.g. receipt just before submission) Lack of shared view (e.g. capacity requirements, cost levels, information gaps, etc) E.g. R43m/km (CEL) versus R2.6m (build-own)? Budget Quotes (BQs) Process delays - e.g. uncertainty about available grid capacity or requirement for transmission strengthening; Substantial variations in cost (e.g. -35% to 200%) and timelines when compared with CEL and actual General Mismatch between excellent resources and availability of grid capacity Delays communicated late in the FC process In some cases, delay around 10 months Locations: NC, W, EC, FS Increasing interest in ‘self-build’ option 11 - Confidential -

13. Grid connections CategorySolutions Cost Estimate Letters (CELs) and Budget Quotes Improved modelling capability and sharing of information between Eskom and project developers Transparent process, indicating potential effect of applications on prospective connection points Use of EIA process as early warning for potential grid connection requirements Integration of grid connection requirements with REIPPPP evaluation process General Better alignment between interests of grid providers and IPPs – e.g. currently only the IPP bears the cost of delays before FC Seems ‘self-build’ option is becoming de facto choice. Therefore recognise as such! Platform for coordination, especially in run-up to FC – PICC and other suitable fora. 12 - Confidential -

14. Permitting CategoryIssues Water-use licences (WUL), SALA No convergence on understanding of effects of WUL delays on FC Delays ranging from 1 to 12 months No clear understanding of the basis for “10%” rule – i.e. RE developments cannot take up more than 10% of agricultural land 13 - Confidential -

15. Permitting CategorySolutions WUL, SALA Documentation of process view FC requirements, to be shared with all relevant parties General Platforms for coordination, especially in run-up to FC - PICC and other suitable fora Acknowledge that RE has best potential to alleviate supply deficit in the short-term. What can be done to realise this potential? 14 - Confidential -

16. THANK YOU Moeketsi Thobela CEO SAPVIA moeketsi@sapvia.co.zamoeketsi@sapvia.co.za’ 083 262 0196